Sunday, November 24, 2013

Paramount Communications Inc. v. QVC Network Inc. case brief

Defendants, a target corporation, an
acquirer corporation, and the target's board, appealed the issuance
of a preliminary injunction by the Court of Chancery in and for New
Castle County (Delaware), in consolidated actions by plaintiffs,
stockholders of the target and an offeror, to enjoin a proposed sale
of control transaction between defendants.

CASE FACTSDefendant corporations entered into
negotiations for the acquirer to purchase controlling stock in the
target. Plaintiff offeror then made an unsolicited tender offer that
eventually exceeded the acquirer's final offer by over $ 1 billion.
Due to a "no-shop" defensive provision in the agreement
between defendants, however, the target's board declined to enter
into negotiations with the offeror. The offeror sought and received a
preliminary injunction to prevent use of the "no-shop" and
other defensive provisions, including a termination fee and a stock
option agreement greatly favoring the acquirer.

DISCUSSION

The injunction was
affirmed.

First, the court applied enhanced scrutiny to the sale of
control transaction, rejecting defendants' contention that a
"break-up" of the corporation to be sold was required
before such scrutiny applied.

Second, the target's directors breached
their fiduciary duty by failing to adequately consider which tender
offer was best for the stockholder; the defensive provisions could
not alter this duty.

CONCLUSIONIssuance of injunction affirmed and
case remanded; enhanced judicial scrutiny of sale of control
transaction between defendants applied, regardless of whether
corporation to be sold would be "broken up," and target's
directors' fiduciary duty to maximize shareholder value in sale could
not be altered by defensive provisions in sale agreement.

Recommended Supplements for Corporations and Business Associations Law

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